Lacking federal aid, New York MTA lays out fiscal doomsday scenario
The holdup — and possible nonexistence — of further federal COVID-19 aid has sent New York’s Metropolitan Transportation Authority scrambling.
At a feisty emergency board meeting laced with frequent mentions of the Great Depression and the 1970s city fiscal crisis, MTA officials on Wednesday rolled out draconian scenarios of service cuts and huge fare and toll increases should significant aid from Congress not materialize.
The state-run MTA, which operates New York City’s subways and buses, two commuter rail lines and several interborough bridges and tunnels, projects a $12 billion operational gap for this year and next, and says it needs it all from Washington.
It also projects a $16 billion gap through 2024. It is losing $200 million per month due to a massive decline in transit ridership and associated fares, toll revenue, subsidies and taxes due to coronavirus-related shutdowns and stay-at-home workforce mandates.
State bond covenants prohibit the MTA, which has roughly $46 billion in debt, from filing bankruptcy.
Chief Financial Officer Robert Foran said service reductions of up to 40% on subways and 50% on the Long Island and Metro-North railroads are possible. The next fare hike could raise the basic fare to $3.75 from $2.75. The MTA could lay off 7,200 workers, or more than 10% of its workforce. Other options could include rush-hour peak pricing on bridges and tunnels.
Wait times for subways and buses could worsen by 8 and 15 minutes, respectively.
Major capital projects could pause, including accessibility initiatives, Phase II of the Second Avenue subway extension, Penn Station access, East Side access into Grand Central Terminal and four new Bronx commuter rail stations.
The ball lies in the federal government’s court, MTA Chairman Patrick Foye said. Foye invoked ridership drops that exceeded those by predecessor agencies during the Great Depression.
“The effect on ridership and revenues, even inflation-adjusted, is extraordinarily more severe in the pandemic than it was during the greatest financial calamity in the 20th century,” Foye told reporters after the meeting.
Foye denied that the MTA was posturing.
“No, this is deadly serious.”
Others called for 1970s-style leadership involving a cross-section of interests, given that Washington help is no given.
“The businesses, the municipal governments, the real estate owners who have benefited for decades by our growth, the unions both directly through their wages and through their pensions, the bondholders, the banks … we have many people, many constituencies that came together in 1975 to save the city,” said board member Neal Zuckerman, a senior partner and managing director in the New York office of Boston Consulting Group.
“Where is our Felix Rohatyn, where is our Dick Ravitch, where is our Al Shanker right now that we need?” Zuckerman said, citing three power brokers who helped the city out of that crisis. “The federal government maybe will come through, maybe they won’t and we’ve got to have an answer.”
The board took no votes Wednesday. Foye said lacking federal aid, it could act on Foran's recommendations in the fall, to take effect in 2021 if necessary. The MTA, which operates on a calendar year, will present its next financial plan to the board in November, with the board to vote on it the following month.
The MTA, the largest Northeast municipal bond issuer for the first six months of the year with $4.4 billion, has received multiple bond-rating downgrades and warnings since March.
Last week, it became the second municipal issuer — after Illinois, the lowest-rated state — to access the Federal Reserve’s Municipal Liquidity Facility short-term borrowing program.
The authority rejected 20 bids totaling $1.6 billion from 10 banks at an average clearing true interest cost of 2.79%, then sold $451 million of three-year bond anticipation notes at a true interest cost of 1.92%. Foran, speaking at a state Senate oversight hearing Tuesday, said the MTA saved $12 million through the deal.
The Fed one week earlier, amid criticisms that the program was too costly, had reduced borrowing costs by 50 basis points or half a percentage point.
“Whether they choose to do that again, I don’t know,” Foran said after the board meeting. “But I will tell you that the flexibility that that program offers, the fact that you can actually repay that if you need to at any time — there’s no penalty to repay it — and the fact that it’s a three-year facility, we find attractive.
“The Federal Reserve personnel were very easy to work with and it’s a program that we find very responsive to our needs.”
Foran said the MTA has $5.8 billion of liquidity, including $1.7 billion in undrawn lines of credit.
Municipal Market Analytics expects the Fed to continue to ease the terms, particularly if the Senate provides no additional aid to state and local governments. That could include extending the borrowing timeline into next year and enabling states to better allocate lendable resources among their eligible issuers. That could mean added capacity for the MTA.
“The MTA’s current market penalty is less about how managers perceive the authority’s particular credit and market risk,” MMA said, noting the wide perception that the authority is too essential for the state to let fail. “[It’s] more about the extra effort it now takes to service clients with significant — or even insignificant — personal exposure to MTA bonds.”
According to data on the Municipal Securities Rulemaking Board's EMMA website, a block of Series 2013-B transportation refunding bonds maturing in 2043 that originally priced at 109.383 cents on the dollar and a 5% coupon sold to a customer Wednesday at a price of 106.516 cents and a 4.5% yield.
The MTA projects its debt-service levels to reach 26% of operating revenues and subsidies next year, up from 11% in 2004. Rachael Fauss, senior research analyst for the good-government group Reinvent Albany, called on state Comptroller Thomas DiNapoli to further examine the MTA’s debt levels.
“A true red line must be drawn on how much debt is too much for the MTA,” she said.
The authority has begun cutting overtime and consultant spending, using its capital lockbox for operations — with state permission — and eliminating pay-as-you-go spending on capital. Those moves, plus a one-time $336 million withdrawal from other post-employment trust proceeds, add up to $1.1 billion this year.
Layoffs and other workforce reductions could save $125 million per 1,000 positions eliminated.
Denise Richardson, a vice president of the watchdog Citizens Budget Commission, called on the MTA to increase tolls by a greater percentage given that toll traffic has returned at a faster rate than subway ridership.
Foye told reporters that real estate selloffs and executive-level salary cuts are also possible.
John Samuelsen, a nonvoting MTA board member and international vice-president of the 39,000-member Transport Workers Union Local 100, said unions would oppose opening up contracts.